Dr Lal pathlabs\u2019 (DLPL) 1FY19 results were below our estimates. Sales recorded 17% growth y-o-y and were 3.4% lower than our estimates. Ebitda recorded 14.5% growth and was 9.2% lower than our estimates. The company is focusing on volume gains and hence is not aggressive with price increases. The company expects that higher volumes would present scale advantage and would allow DLPL to gain cost leadership. DLPL currently trades at 36.7x and 29.4x on FY19F and FY20F EPS of Rs 25.2 and Rs 31.5, respectively. The valuations are supported by long-term growth prospects and high profitability of the sector. We value Dr Lal PathLabs based on 32.5x FY20F EPS of `31.5 to arrive at our TP of Rs 1022. 32.5x P\/E is the midpoint of the fair value range of 30-35x. The company is focusing on volume growth. The revenue growth is 17% y-o-y. The patient and tests per patients have increased by 18% and 6% y-o-y, respectively. Therefore, the number of tests increased 25% y-o-y. The volume growth is driven by expanding presence through franchisees across the country. Approximately 30-35% of the revenues is generated through franchises currently and ~50% of the incremental revenues is driven through franchises. The payout to collection centres rose 24% y-o-y (versus 17% revenue growth). Over time, management expects to gain volumes from the smaller unorganised players, who can act as front-end collection centres. The company has restrained price increases which has improved the value proposition for customers. With scale, DLPL intends to have cost advantage. Higher volumes allow DLPL to have bargaining power with reagent suppliers. The company has also negotiated lower rents. DLPL has a strong presence in North and East India. The company\u2019s presence in South and West India is limited (~30 out of 193 clinical labs) and the focus is largely on high-end specialty tests.